On the Allocative Efficiency of Competitive Prices in Economies with Incomplete Markets
38 Pages Posted: 7 May 2019
Date Written: September 30, 2003
Abstract
A new measure of constrained efficiency for application in economies with incomplete markets is presented. This measure — termed Allais-Malinvaud efficiency — can be viewed as adjusting for market incompleteness not fully captured in previous work. It is shown that equilibrium allocations in Radner-GEI economies are always Allais-Malinvaud efficient. In particular, a re-distribution of assets in equilibrium cannot induce a relative price change that leads to an Allais-Malinvaud improvement. Moreover, this result extends to Radner-GEI economies in which consumer liability is limited by bankruptcy.
Keywords: Allocative Efficieny, Incomplete Markets, Allais-Malinvaud Efficiency
JEL Classification: D52, D61
Suggested Citation: Suggested Citation